Mzansi Money Heartbreak: Why Our People Are Falling For Expensive Property Dreams

When the South African Reserve Bank dropped interest rates by 0,25% in June (bringing the repo rate down to 7,25% and prime to 10,75%), those homeowners who had long wanted to scale up but had not done so due to affordability concerns may well have been tempted to take the plunge. But buying a home isn’t just about crunching numbers – it’s a personal journey filled with dreams and emotions that we may not even realise are in the mix. In truth, as humans, it’s natural for us to lead with our hearts and not with our heads.

A study conducted by Nobel laureate and behavioural psychologist Daniel Kahneman, who is widely respected for his research into human judgment and decision-making, found that emotions contribute about 90% to the decisions we make, while logic weighs in at a paltry 10%.

It’s a sobering ratio and a reminder that we need to be aware of the impact emotion-led decision-making can have on our lives, especially when it comes to the big buys. It’s all well and good to succumb to the allure of a beautifully tailored shirt on a shopping spree, but quite another if we rely primarily on our emotions when making what is often the biggest investment of our lives: choosing to buy or sell a property.

It’s easy to understand why owning a luxurious home that confers on its owners a sense of having “made it” is such an important factor in the hearts of so many. But it’s important to interrogate your reasons for wanting to scale up and to be aware of the potential implications, financial and otherwise, that such a decision will have in the long term.

Balancing out your emotional responses with practical home-buying considerations can help you find a middle ground between what feels like a good decision and what is actually a good decision from a financial perspective.

Here are some factors to consider:

Bigger isn’t always better. Larger homes come with larger responsibilities, and this doesn’t only apply to your bond repayment. Factor in higher property rates and taxes, higher insurance premiums and maintenance costs, not to mention the cost of moving and the set-up costs of furnishing a bigger property when you make that move.
The case for less stress. Studies have shown that owning a home you can comfortably afford is associated with lower stress, better mental health, and an enhanced overall quality of life. Your home should be your refuge and your sanctuary, a genuine escape from everyday stresses, but if buying that dream home stretches your finances too thin, it can quickly become a source of persistent anxiety.
Move or improve? In some cases, moving really is the only option. You may have to relocate to be in a specific school catchment area, or perhaps you have been transferred for work. However, if you only need an extra bedroom or a second garage, it may be worthwhile making improvements to your existing home. To avoid over-capitalising, focus on improvements that will add real value to your home. Overcapitalising in an area or suburb where homes are selling for less than what you’re investing in your property means that down the line, you may have to sell for less than the value you hoped to create through capital improvements. Consult with a “resident agent”, or property professional who specialises in your area, for advice on actual market values to ensure that your renovations/building plans can be recouped when you sell.
Equity and opportunity. Owning your own home offers both stability and the opportunity to build equity over time. But it’s important to stay in your property long enough for its value to increase to the point that it offsets the amount you have spent in order to move. It is generally accepted that this break-even point is reached after five to seven years, depending on the property’s price and the overall market. If you decide to sell before then, you may not recover your costs and could end up losing money on the move.

When homeowners understand the emotional drivers behind their property decisions, they can make smarter, more confident choices around scaling up, scaling down, moving or staying put.

Before making a knee-jerk property decision, always consult a professional property practitioner who can run the numbers and give you sound, unemotional advice.

Mzansi Pulse

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Mzansi money heartbreak: Why our people are falling for expensive property dreams

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